What is the meaning of ‘depreciation of direct investments’?
• It appears that drawal of foreign exchange for depreciation of direct investment may be required for replenishment or recapitalisation of overseas investments may be according to the law of the concerned State or otherwise. E.g. An Indian company having an
investment of Rs. 10 million in the net worth of a wholly owned subsidiary in a country ‘A’. That wholly owned subsidiary has incurred a loss of Rs. 4 million.
The regulations of country ‘A’ provide for a minimum net worth of Rs. 10 million.
The Indian company has to draw foreign exchange equivalent to Rs. 6 million to recapitalise and bring the net worth to Rs. 10 million.
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